Long-term bonds are most at risk of a rate hike. For instance, TLT shows a 17.7 year duration – duration is a bond fund’s measure of interest rate sensitivity. Consequently, a 1% rise in rates could translate to about a 17.7% decline in TLT’s price. In contrast, bond funds with shorter durations would have a lower sensitivity to rate changes.
Meanwhile, as investors exited the long-term bond ETF, some traders have piled into inverse Treasury options to hedge portfolios or capitalize on a potential quick profit. For example, the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which seeks to deliver twice the daily inverse performance of the Barclays Capital US Treasury 20+ Year Treasury Bond Index, has attracted $65.7 million in net inflows and TBT’s triple-leveraged cousin, the Direxion Daily 20-Year Treasury Bear 3X ETF (NYSEArca: TMV), has added $25.3 million over the past three weeks, according to ETF.com.
iShares 20+ Year Treasury Bond ETF
For more information on the Treasuries market, visit our Treasury bonds category.
Max Chen contributed to this article.